Vanguard Stimulation Services, LLC v. Trican Well Service, L.P. et al, No. 4:2013cv00507 - Document 20 (S.D. Tex. 2013)

Court Description: MEMORANDUM OPINION AND ORDER denying 10 MOTION to Dismiss 1 Complaint Pursuant to Federal Rule of Civil Procedure 12(B)(6). (Signed by Judge Sim Lake) Parties notified. (aboyd)
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Vanguard Stimulation Services, LLC v. Trican Well Service, L.P. et al Doc. 20 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION VANGUARD STIMULATION SERVICES, LLC, § § § § Plaintiff, § § § § § § § v. TRICAN WELL SERVICE, L.P. and WELLS FARGO BANK, N.A., Defendants. CIVIL ACTION NO. H-13-0507 MEMORANDUM OPINION AND ORDER This declaratory judgment action arises out of a dispute between Vanguard Stimulation Services, LLC ("Vanguard") and Trican Well Service, funds. L. P. ("Trican") over the distribution of Pending before the court is Trican's Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12 (b) (6) Motion escrow to Dismiss") (Docket Entry No. 10) For ("Trican' s the reasons and a buyer (Trican) explained below, the motion will be denied. I . A. Background The Parties' Contract In March of 2010 a seller (Vanguard) executed a written contract for the sale of certain assets.l The lAsset Purchase Agreement, Ex. A to Plaintiff's Original Complaint and Jury Demand ("2013 Complaint"), Docket Entry No. I-I, p. 1. Other entities were involved in the transaction, but those entities are neither relevant to this dispute nor parties to this lawsuit. See id. Dockets.Justia.com contract's price and payment terms are governed by a separate agreement (the "Escrow Agreement") whereby Trican agreed to deposit a sum of money in an account designated by Wells Fargo Bank, N.A. ("Wells Fargo"), Fargo retained the escrow agent. 2 the authority to As the escrow agent, distribute the Wells escrow funds, subject to the terms and conditions of the Escrow Agreement. 3 The Escrow Agreement provided for Wells Fargo to make three separate distributions. 4 Pursuant to the Escrow Agreement, Trican may make a claim against the escrow funds for indemnification by delivering to Wells Fargo and Vanguard "a written notice (an 'Indemnification Notice') setting forth the nature, dollar amount and basis for such claim in reasonable detail the (an 'Indemnification Claim') and whether or not Indemnification Claim is a Tax-Related Claim.,,5 The same section of the Escrow Agreement provides that if Trican does so, and Vanguard does not object, Wells Fargo shall transfer to Trican an amount of the escrow funds equal to the amount of the Indemnification Claim. 6 2Escrow Agreement, No. 1-2, art. 1, § 1.1. Id . § 1. 4 (e), SId. § 1.4(b) 4 Ex. B to 2013 ( f), and (g) . (emphasis removed) 6Id. -2- Complaint, Docket Entry The Escrow Agreement also requires Vanguard to "file with the Texas Comptroller pursuant to Section 111.020 of the Texas Tax Code an application . . . for a 'Certificate of No Tax Due' with respect to [Vanguard] and its operations."7 Wells Fargo is obligated to release $2,211,921 from the escrow funds to Vanguard if Vanguard timely files the application for, and obtains, the Certificate of No Tax Due. 8 when A "Release Event" occurs under the Escrow Agreement Vanguard provides reasonably satisfactory successor liability taxes have been resolved. 9 evidence that If Trican does not object to the occurrence of a Release Event, the Escrow Agreement provides that Wells Fargo shall transfer to Vanguard an amount equal to the amount reserved in the escrow funds for such successor liability taxes B. .10 The Lawsuits Disputes over the distribution of the escrow funds have given rise to two lawsuits. In 2011, prior to the second distribution, Vanguard objected to Trican's purported Indemnification Claim.ll 7Id. § 1. 3. BId. § 1.4(j) 9Id. § 1.4(1) lOrd. IlPlaintiff's Original Complaint and Jury Demand, Cause No. H-11-3973 ("2011 Complaint"), Ex. A to Trican's Motion to Dismiss, Docket Entry No. 10-1, ~~ 12-14. -3- Vanguard filed an action against Trican and Wells Fargo in this court on November 11, 2011 (the "2011 Action U seeking ), a declaratory judgment: I. [That] Trican does not have a valid Indemnification Claim (including a valid Tax-Related Claim) against the $1,465,287.01 in Escrow Funds that were due to be released to Vanguard on the Second Distribution Datei 11. That Trican did not provide a valid Indemnification Notice in accordance with the terms of the Escrow Agreement; and iii. That [Wells Fargo] shall release the $1,465,287.01 in Escrow Funds to Vanguard upon delivery of a final order in accordance wi th the above. 12 The parties subsequently reached a settlement, and the 2011 Action was dismissed with prejudice on January 24, 2012. 13 Vanguard filed the pending action on February 25, 2013 "2013 Action U ), (the alleging that under the Escrow Agreement it is enti tIed to the third distribution of escrow funds. 14 Vanguard alleges that it has complied with the provisions in the Escrow Agreement concerning the application for a Certificate of No Tax Due. 1S Vanguard further alleges that the Texas Comptroller issued a Certificate for "all permitted taxes § U and that under TEX. TAX CODE 111.020 the Texas Comptroller's failure to issue a Certificate for sales taxes means that Trican is released from the obligation 12 Id . ~ 2 0 (b) . 13Dismissal Order, Cause No. H-11-3973 ("2011 Dismissal Ex. B to Trican's Motion to Dismiss, Docket Entry No. 10-2. 14 2013 Complaint, Docket Entry No.1. -4 - U ), to pay sales taxes. 16 Event occurred. 17 Vanguard alleges that therefore a Release Vanguard requests a declaratory judgment: I. [That a] Release Event has occurred within the meaning of Section 1.4(1) of the Escrow Agreement; and 11. That [Wells Fargo] shall release the full Remaining Escrow Amount, consisting of the sum of $2,211,921 plus all accrued interest, to Vanguard upon delivery of a final order in accordance with the above. ls Vanguard also seeks monetary damages. 19 Trican filed a motion to dismiss the 2013 Action on May 6, 2013, arguing that Vanguard's claims are barred by the doctrine of res judicata. 2o In a response filed on May 28,2013, Vanguard argues that the motion should be denied because res judicata does not apply to declaratory relief actions. 21 here is entirely different Vanguard also argues that the dispute from the dispute underlying the 2011 Action and therefore that the elements of res judicata have not been satisfied. 22 Trican replied on June 7, 2013. 23 16Id. 2°Trican's Motion to Dismiss, Docket Entry No. 10, ~ 4. 21Vanguard's Opposition to Trican's Motion to Dismiss Pursuant Federal Rule of civil to Procedure 12 (b) (6) ( "Vanguard's Opposition"), Docket Entry No. 11, pp. 6-9. 22Id. at 5-6. 23Trican's Reply in Support of Its Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12 (b) (6) ("Trican' s Reply"), Docket Entry No. 14. -5- II. A. Motion to Dismiss Standard A motion to dismiss Procedure 12 (b) (6) may Applicable Law be granted pursuant to Federal Rule of Civil for failure to state a claim for which relief is "appropriate when a defendant attacks the complaint because it fails to state a legally cognizable claim." Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). When considering a motion to dismiss the court must accept the factual allegations of the complaint as true inferences in the plaintiff's favor. and draw all reasonable Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004). The court's review of the record is "limited to the complaint, any documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint." Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010). The court may also refer to matters of public record in considering a motion to dismiss. Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994). B. Res Judicata The doctrine of res judicata bars the litigation of claims that have been litigated or should have been raised in an earlier suit. Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 571 (5th Cir. 2005). The res judicata effect of a prior federal court judgment is determined by federal -6- law. Robinson v. Nat'l Cash Register Co., 808 F.2d 1119, 1124 (5th Cir. 1987). Four elements must be satisfied for res judicata to bar an action: parties in identical; the (2) prior action and the pending action (1) the must be the judgment in the prior action must have been rendered by a court of competent jurisdiction; (3) the prior action must have concluded with a final judgment on the merits; and (4) the same claim or cause of action must be involved in both the prior action and the pending action. 484 F.3d 321, 326 (5th Cir. 2007). United States v. Davenport, The party asserting that the doctrine of res judicata bars an action bears the burden of proof on these elements. Grynberg v. BP P.L.C., 855 F. Supp. 2d 625, 649 (8.D. Tex. 2012). III. A. Analysis Applicability of Res Judicata Before reaching the question of whether the doctrine of res judicata bars the 2013 Action, the court must address the threshold question of whether the doctrine may apply in cases where the prior action sought declaratory relief. Vanguard urges the court to hold that it may not, arguing that as a matter of law a dismissal with prejudice of a declaratory judgment action may not have a res judicata effect on a subsequent suit between the same parties. 24 The court does not agree. In the Fifth Circuit the doctrine of res judicata is not limited only to actions seeking damages or coercive relief. 24Vanguard's Opposition, Docket Entry No. 11, pp. 6-9. -7- Courts use the unmodified term "action" to describe the prior and pending suits when setting out the elements of res judicata. Davenport, 484 F.3d at 326; Singh, L.L.C. United States, v. in Moreover, application 365 of res declaratory relief. F.3d 385, 395 Fifth Circuit the Petro-Hunt 428 F.3d at 571; judicata where a See, e.g., Petro-Hunt, (5th Cir. prior 2004). considered action the involved Although the court in Petro-Hunt concluded that the prior action did not involve the same claim or cause of action, and explicitly applied conclusion. 706 therefore had the no elements preclusive to the effect, facts to the court reach that Id. at 395-97; see also Hatton v. Grigar, 258 F. App'x (5th Cir. 2007) (affirming district court's dismissal on res judicata grounds where prior action involved declaratory judgment action) . Accordingly, prior judgment in a as long as the elements are satisfied, suit a seeking declaratory relief may bar a subsequent suit under the doctrine of res judicata. The court therefore declines to hold that as a matter of law res judicata may not apply in this case on the ground that the 2011 Action sought declaratory relief. 25 25The court also rejects any argument that as a matter of law res judicata may not properly serve as the basis for a motion to dismiss. See Larter & Sons v. Dinkier Hotels Co., 199 F.2d 854, 855 (5th Cir. 1952) (holding that a court may rely on the doctrine of res judicata to dismiss an action pursuant to Rule 12(b) (6)); Hatton, 258 F. App'x 706 (affirming district court's Rule 12(b) (6) dismissal on res judicata grounds) . -8- --_._.--_.---_. B. Satisfaction of the Doctrine The first three elements of res judicata are not in dispute in this case: the parties in the 2011 Action and the 2013 Action are identicali the judgment in the 2011 Action was rendered by this court, a court of competent jurisdictioni and the court's dismissal of the case with prejudice was a final judgment on the merits. Oreck Direct, LLC v. Dyson, Inc. 1 560 F.3d 398 1 See 401 (5th Cir. 2009) ("[T]he district court/s dismissal of the case with prejudice was a final judgment on the merits.lf) i Pilots Ass'n, 987 F.2d 278 1 284 n.8 which is designated 'with prejudice the merits for purposes of res marks omitted)) Fernandez-Montes (5th Cir. 1993) v. Allied ("A dismissal is normally an adjudication on l judicata. If (internal quotation At issue is whether the fourth element has been satisfied. The Fifth Circuit has adopted the "transactional test lf to determine whether two suits involve the same claim or cause of action. Petro-Hunt, 365 F.3d at 395. Under the transactional test "the preclusive effect of a prior judgment extends to all rights the original plaintiff had with respect to all or any part of the transaction, or series of connected transactions, out of which the original action arose. If quotation marks omitted). actions under Id. at 1 If Id. (internal alterations and The crucial issue is "'whether the two consideration are opera t i ve facts. 396 based on the same (quoting In re Southmark Corp. -9- nucleus 1 of 163 F. 3d 925, 934 (5th Cir. 1999)); see also In re Ark-La-Tex Timber Co., 482 F.3d 319, 330 (5th Cir. 2007) ("[W]hether the same nucleus of operative facts is present revolves around the factual predicate of (internal quotation marks omitted)). the claims asserted." If a party can only win the suit by convincing the court that the prior judgment was in error, the second suit is barred. Singh, 428 F.3d at 571. Trican bears the burden of proving that the 2013 Action and the 2011 Action involve the same nucleus of operative facts. Grynberg, 855 F. Supp. 2d at 649; Petro-Hunt, See 365 F.3d at 396. Trican argues that Vanguard's claims in both actions arise from the same contracts and involve disputes over the distribution of money from the escrow funds to Vanguard "as a result of Vanguard's failure to pay and/or its failure to obtain confirmation of payment of Taxes."26 Trican further argues that prior to the 2011 Action it requested from Vanguard a "tax clearance certificate evidencing no tax due."27 Trican therefore contends that because Vanguard's claims in the 2013 action were or should have been raised in the 2011 action, Vanguard's Complaint the 2013 Opposition that the action points Texas is to barred the by res allegation Comptroller's failure judicata. 28 in to 26Trican's Motion to Dismiss, Docket Entry No. 10, 27Id. 28Id. -10- the 2013 issue ~ 17. a Certificate of No Tax Due resulted in a Release Event. 29 Vanguard therefore contends that the 2013 Action turns on a distinct set of operative facts. 3o The (3) facts operative included: (2 ) The court agrees. the (1) the 2011 Action the validity of Trican's Indemnification Claim; validity Vanguard's in alleged of Trican's entitlement to Notice; and distribution. 31 By Indemnification the second contrast the operative facts alleged in the 2013 Action include: (1) Vanguard's compliance with the provisions of the Escrow Agreement concerning the application for a Certificate of No Tax Due; (2) the failure of the Texas Comptroller to issue the Certificate for sales taxes; (3) the occurrence of a Release Event; and (4) Vanguard's entitlement to the third distribution. 32 The similarities between the actions -- the underlying Escrow Agreement and the disputes determinative. concerning the payment of taxes are not See Petro-Hunt, 365 F.3d at 396 (" [O]bservations of factual similarity, although potentially relevant for purposes of collateral estoppel, are not relevant to res Judicata. judicata is concerned with the sameness of operative facts.") [R]es For 29Vanguard's Opposition, Docket Entry No. 11, p. 5. 30Id. 31 2011 Complaint, Ex. A to Trican's Motion to Dismiss, Docket Entry No. 10-1, ~ 20. The Escrow Agreement and the 2011 Complaint are properly before the court on this motion to dismiss. See Connick, 15 F.3d at 1343 n.6; Lone Star, 594 F.3d at 387. 32 2013 Complaint, Docket Entry No. 1, -11- ~~ 20, 26. purposes of res judicata the facts that reveal similarities between the two actions are not the operative facts as alleged by Vanguard. The factual predicates of Vanguard's two actions do not rest on the existence of the Escrow Agreement and the general allocation of tax liabilitYr but on the performance of separate and distinct duties enumerated in the Escrow Agreement. Further distinguishing the two actions is the fact that the correctness of the prior judgment has no effect on the outcome of this case. Trican's argument that it See Singh r 428 F.3d at 571. requested a "tax clearance certificate" prior to the 2011 Action -- and that therefore the claims in the 2013 Action should have been raised in the 2011 Action does not persuade the court. The fact requested the Certificate is not an operative fact Action. that Trican in the 2013 The court also rejects Tricanrs argument that res judicata bars the 2013 Action because Vanguard had obtained the pertinent Certificate of No Tax Due prior to filing the 2011 Action. 33 Even if that is truer Vanguard would not have been required to raise the claim concerning the Certificate in 2011. In this case the dispute over the Certificate is relevant to the third distribution r not the second. The nature of the parties' agreement provided for three separate payments r all of which were subject to certain terms and 33Trican r s ReplYr Docket Entry No. 14 r -12- ~ 4. conditions. Vanguard's two actions for declaratory relief invoke distinct terms and conditions of the Escrow Agreement, and are based on two different distributions that were to occur separately. under the facts alleged in the 2013 Complaint, which the court must accept as true, Vanguard's rights at the time of the 2011 Action did not extend to the dispute that underlies the 2013 Action. Petro-Hunt, 365 F.3d at 396. See Taken to its logical end, Trican's reasoning would permit a party to a contract such as the Escrow Agreement to file a declaratory judgment action with respect to the first distribution, dismiss the suit, and thereby immunize itself from suit if distribution. ends. a dispute should arise concerning a later The doctrine of res judicata is not a means to such Having considered the facts alleged on the face of the 2013 Complaint, in conjunction with the Escrow Agreement and the 2011 Complaint, the court concludes that the two actions are not based on the same nucleus of operative facts. Trican has therefore failed to carry its burden to show that the 2011 Action and the 2013 Action involve the same claim or cause of action. IV. Conclusion and Order Accepting the factual allegations of the 2013 Complaint as true and drawing all reasonable inferences in Vanguard's favor, see Eby Construction, 2013 Action is 369 F.3d at 467, not barred by res -13- the court concludes that the judicata. Vanguard's 2013 Complaint is therefore not subject to dismissal on res judicata grounds. Accordingly, Trican's Motion to Dismiss (Docket Entry No. 10) is DENIED. SIGNED at Houston, Texas, on this the 27th day of June 2013. UNITED STATES DISTRICT JUDGE -14- ----------------,----